Fed raises key interest rate

The Fed also announced it will sell off some of the bonds and other securities it's holding. Wednesday's hike is its fourth since then.

The decision lifted the US central bank's benchmark lending rate by a quarter%age point to a target range of 1.00% to 1.25% as it proceeds with its first tightening cycle in more than a decade. The Fed has kept its key interest rate at unprecedented low levels for years in an effort to help the economy recover from the Great Recession. Though the economy is growing sluggishly and inflation remains below the 2 percent target, it foresees improvement in both measures.

"The Committee now expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated", said the Fed in the statement.

USA stock index futures pointed to a mixed open on Thursday morning as traders reacted to the Federal Reserve's latest policy decision and technology stocks slumped for the second time this week.

The Fed also put out a statement about its plans to unwind its big bond portfolio, bought as part of its bid to restart the United States economy after the 2007-09 recession. That effort resulted in a five-fold increase in its portfolio to $4.5 trillion.

"The Fed said today that it would decrease reinvestment of maturing bonds at a steadily increasing rate until after a year it is holding back $30bn a month on Government bonds and $20bn on mortgage backed securities".

That upward pressure is coming, in part, from a low unemployment rate.

This is the second interest rate rise in three months, and most analysts expect that the Fed will increase rates once more this year.

The dollar was steady on Wednesday, reversing major early losses, after the Federal Reserve raised USA overnight interest rates and said it was prepared to continue tightening monetary policy.

The Fed also issued updated economic forecasts that showed it foresees one additional rate increase this year to follow Wednesday's increase and an earlier rate hike in March.

The central bank has signalled it expects one more rate hike in 2017 and three in 2018, with the aim of gradually lifting its target to 3 per cent by the end of 2019. A slide in technology stocks weighed on the Nasdaq and S&P 500 as investors anxious about the pace of economic growth after the rate increase and weaker-than-expected inflation data.

But the Fed's forecasts are only predictions and are frequently revised as its assessments evolve. Some also note that political paralysis in Washington has raised doubts about whether Congress will increase the nation's borrowing limit and pass a new budget. Yellen's term as chair ends in February 2018, and Trump has not said if he would ask her to stay on. Sterling weakened 0.3 percent to $1.2717 before a Bank of England policy decision expected to leave interest rates at record lows. However, there were no major changes in the latest projections on GDP growth, inflation and the fed funds rate, and the only surprise came from the detailed plan on balance sheet normalization.

They forecast US economic growth of 2.2% in 2017, an increase from the previous projection in March.

"Now that the Fed is apparently not as dovish as we thought and won't be reacting to weak inflation numbers, the Aussie and kiwi are naturally giving up their gains", Franulovich said. They fell as low as 2.103 percent following the downbeat data, their lowest since November 10. The pan-European STOXX 600 index dropped 0.5 percent, led lower by the basic resources and oil and gas sectors, as the stronger dollar weighed on metals prices.

The Fed's meeting was the first since May's job report was released.

Officials worry that keeping rates too low for too long could spark a burst of inflation that could hurt the economy.